http://www.energycreditmonitor.com/
Jim Norman Wednesday, September 10, 2008 OPEC cuts, and oil prices drop Oil prices were trading DOWN again today, despite OPEC's decision Tuesday to cut production by some 525,000 barrels a day (about 1.7%). NYMEX front-month futures were below $103/bbl in pre-market trading. This is consistent with yesterday's post, arguing the US is now behind a downward movement in crude prices aimed at punishing the Russians for their belligerent posture toward Georgia and possible political threats to Ukraine and Europe in general. The Wall Street Journal noted Saudi Arabia, the main arbiter of oil prices, apparently opposed the production cut and is likely to go its own way in adding supply to the market. This can be viewed as a US- driven posture. Many of those OPEC producers who have lobbied hardest for the production cuts (such as Iran and Venezuela) are actually having great difficulty in maintaining their current allotments of output. By voting for quota cuts, they are merely giving fellow producers the sleeves from their vests, as it were. Also out today is a new monthly IEA forecast saying global oil demand this year will average just 86.8 million b/d this year and 87.6 million in 2009. That is down from IEA's prior forecast by 100,000 b/ d this year and 140,000 b/d next. OECD demand is now expected to fall 1.6% from 2007 to 48.4 million b/d and US demand for refined product is seen dropping 4% to under 20 million b/d. IEA's prior prediction was for 2.3% US demand growth. This fits with the case made in “The Oil Card” that much of US petroleum demand is discretionary and can be reduced without harming the economy. Meanwhile, the IEA revised UPWARD (again) its forecast of Chinese (and Indian) petroleum demand, raising its non-OECD 2008 consumption forecast by 50,000 b/d to 38.3 million b/d. IEA cut its non-OPEC production estimate by 180,000 b/d to 49.9 million this year. But my hunch is output will come in higher than that as the US moves to encourage increased output by the majors. To desperately try to prop up prices, you may see the Russians further reducing output, however. Crude markets will nevertheless remain well supplied. Nobody will be wanting for crude, albeit still pricey stuff at more than $100/bbl. Look for it to move down further and fund outflows continue from commodity index players. Meanwhile, China continues to show severe economic strains from the nose-bleed run-up in crude and other commodity price in the first half of this year. In a stunning reversal, sales of new cars in China fell more than 6% in August for the first monthly decline in many, many years. Inflation remains a worsening problem as China's producer price index climbed to 10.1% above a year ago, from 10% last month. Food costs have eased, but consumer prices for fuel and electricity remain below world market prices. Analysts expect China to embark on a major economic stimulus program to try and maintain the double-digit GDP growth needed to avoid rising unemployment and social unrest there. Even with a 30% drop in crude prices in the past two months, China ain't out of the woods. Price controls have caused continuing shortages of fuel and power. Other key industrial input costs have continued to climb. Brazilian iron ore producer Vale confirmed yesterday it is now negotiating a second price hike this year with the Chinese. In copper, where China has been hellbent to be the world's largest producer and exporter, prices of the finished metal are falling while (imported) ore costs still rise. 8:44 am est ------------------------------------ Complete archives at http://www.sitbot.net/ Please let us stay on topic and be civil. OM Yahoo! Groups Links <*> To visit your group on the web, go to: http://groups.yahoo.com/group/cia-drugs/ <*> Your email settings: Individual Email | Traditional <*> To change settings online go to: http://groups.yahoo.com/group/cia-drugs/join (Yahoo! ID required) <*> To change settings via email: mailto:[EMAIL PROTECTED] mailto:[EMAIL PROTECTED] <*> To unsubscribe from this group, send an email to: [EMAIL PROTECTED] <*> Your use of Yahoo! Groups is subject to: http://docs.yahoo.com/info/terms/
